New Thomson Reuters report on Forties pipeline outage ramifications

Following Forties Pipeline System shutdown, an expected minimum amount of 7.05 million bbls of Forties crude will be removed from the market, based on Thomson Reuters Oil Research production forecasts for December 2017.

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The disruption of the pipeline has resulted in the declared force majeure by the pipeline operator.

The M1-M6 Brent forward curve experienced a greater shift towards backwardation on Monday, 11 December following announcement of the Forties pipeline outage.

The Forties pipeline shutdown reduces UK domestic gas production by 40 million m3/d. This represents one-third of production and about 10% of recent peak consumption.

A further 10 million m3/d of Norwegian gas is impacted by Forties, requiring a higher NBP against Continental hubs to maintain strong imports from Norway.

Pipeline shutdown was compounded by outages at other UK fields and a shutdown of Norwegian fields on Tuesday 12 December.

Commenting on the Forties situation, Shakil Begg, Head of Oil Research and Forecasts, Thomson Reuters said:

“Brent crude prices have seesawed this week after news broke of a leak in the Forties Pipeline lead to a controlled shutdown. Pipeline flows of Forties – which contributes the greatest volume to the Dated Brent benchmark – have been curtailed sending physical differentials and futures prices soaring. The largest impact was seen in front month spreads which widened to almost US$0.7/bbl on Monday (11 December). A statement by the IEA suggesting it was “monitoring the situation closely” together with some profit taking caused a sell-off that extended into Wednesday after the Grangemouth refinery announced it was bringing forward planned maintenance and potentially halting operations. A larger than expected gasoline stock build in the US reported by the EIA kept prices under pressure on Wednesday as concerns over the supply overhang in the market resurfaced. According to Thomson Reuters Oil Research estimates, Forties production could fall by more than 10 million bbls in December, down nearly 80% compared to November levels as pipeline disruption leads to logistical bottlenecks at offshore platforms.”

Oliver Sanderson, Lead Natural Gas Analyst at Thomson Reuters added:

“The events of this past week are a perfect storm for the UK gas market. Bottlenecks in southern England emerged and storage withdrawals approached maximum capacity. Prices rocketed to incentivise normally dormant or under-used sources to provide flexibility but in the end the system was able to cope and all demand was met.

The Forties outage is expected at 3 - 4 weeks. During this period look for the NBP to remain strong against Continental hubs, even if current levels appear to be slightly overvaluing risk. The acute price spike this week was more a result of Norwegian outages than Forties, but the Forties outage does leave the NBP at an elevated level and increase risk going into the new year. If not for a period of mild weather approaching before Christmas the impact of Forties would have been stronger.”